Word Count 250 words or more. Everything must be in own words. Please use the Bethel University Library. Please no PLARGRISM.

H. JOHN BERNARDIN Stewart Distinguished Professor, Florida Atlantic University

JOYCE E. A. RUSSELL Ralph J. Tyser Distinguished Teaching Fellow, The University of Maryland

Human Resource Management An Experiential Approach

Sixth Edition

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Chapter

1 Strategic Human Resource Management in a Changing Environment

According to graphologist Paul Sassi, the fluidity of President Obama’s signature is a sign

of high intelligence, while its illegibility shows he is protecting his privacy. “He doesn’t

want you to know him too well.” Another handwriting expert concluded: “The large

letters in Obama’s signature show that he is ambitious, self-confident, and views himself

as a leader. . . . The fluid letter forms reveal that he can form a coalition, be diplomatic,

and get along with both sides of the aisle.” She added: “He’s the type of guy who could tell

you to go to hell and you’d enjoy the trip.” 1 In her assessment of Mitt Romney, grapholo-

gist Sheila Kurtz concluded that he is inclined to think quickly but impulsively, to dream

big, but don’t even think about telling him what to do. Kurtz describes President Obama as

“unclogged with preconceptions and prejudices,” with an ability to consider new ideas and

probe beneath the surface of issues. She also claims his handwriting also reveals that he is

unlikely to act on “raw or coerced impulse.” 2

When one of your authors shared these assessments with undergraduate human

resources classes, about 20 percent of students thought the evaluations were “dead on

accurate,” another 30 percent described the profiles as “mostly accurate,” about 25 percent

OVERVIEW

O B J E C T I V E S

After reading this chapter, you should be able to

1. Describe the field of human resource management (HRM) and its potential

for creating and adding value within contemporary organizations.

2. Describe discrepancies between actual HRM practices and recommendations

for HRM practice based on scholarly research.

3. Describe the major activities of HRM.

4. Explain important trends relevant to HRM, including the increasing

globalization of the economy, changing technology, the role of regulations

and lawsuits, the changing demographics of the workforce, and the

growing body of research linking particular HRM practices to corporate

performance.

5. Emphasize the importance of measurement for effective and strategic HRM.

6. Understand what is meant by competitive advantage, and what the four

mechanisms are for offering and maintaining uniqueness.

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thought they were “completely inaccurate,” and about 25 percent had no opinion at all

on the accuracy of the profiles. Within the last group, however, about half of the students

expressed skepticism about assessing someone’s personality, intelligence, motivation, or

anything else important using the person’s handwriting. It is this group of students who

are “dead-on accurate.” Research clearly shows that handwriting is not a valid means of

assessing anything important (except your handwriting!).

The assessment of politicians is not the only application you will find of such invalid

assessment methods. Inc. magazine, one of the most popular magazines for U.S. small businesses, ran a story extolling the benefits of using graphology to hire managers. 3 The

article reported that the use of graphology was on the increase and that the method was

very effective for selecting managers and salespersons. Sound research in human resource

management (HRM) has determined that companies would do just about as well picking

names out of a hat to make personnel decisions. 4

Skilled HRM specialists help organizations with all activities related to staffing and maintain-

ing an effective workforce. Major HRM responsibilities include work design and job analysis,

training and development, recruiting, compensation, team building, performance management

and appraisal, and worker health and safety issues as well as identifying and developing valid

methods for selecting staff.

Research by academics who study and teach HRM is devoted to identifying the most

effective and efficient methods for meeting these HRM responsibilities. A key theme of

this book is that the most effective HRM programs, policies, and practices are those that are developed based on HRM research results. Another theme of this book is that contemporary HRM practice often ignores the sound research about policy, practice, or

people that is available to help make good decisions. Instead, organizations are apt to adopt

an HRM practice merely because competitors are using it (this was a main theme of the

Inc. article about graphology). One of your authors once had a conversation with a business owner who had hired his

145-person sales staff based on graphology reports (at $75 per report) and the answer to a

single question posed in an interview. When questioned about the validity of these meth-

ods, the business owner described one terrible salesman he had hired out of desperation in

a tight labor market despite a graphologist’s report that said the “small writing with little

slant indicated he may be too introverted for sales work.” This one example had stuck in

his mind as “proof” of graphology’s effectiveness. He lamented, “If only I had listened

to the handwriting expert. I wasted a bundle training the guy!” Those of us who teach

statistics refer to this type of “research” as a “man who” statistic in which a person enlists

a single case to support or refute a theory. For example, when you discuss the overwhelm-

ing evidence showing that smoking causes cancer, someone might offer the counterargu-

ment that “yea, but my aunt smoked three packs a day and lived to be 90.” An article in

the Washington Post reported that the Pilot Pen Company’s CEO Ronald Shaw was a big believer in graphology and would use it for all hiring decisions because the graphologist’s

profile based on his own handwriting showed that he was “sincere and intelligent and had

a lot of integrity.” 5 While (apparently) flattery will get you somewhere (or at least a good

consulting gig), graphology will not get you accurate or valid assessments of the personal

characteristics related to job performance (even the job of president). Needless to say, this

is not the way to do research on a procedure.

There are good ways to do research and good ways to assess the effects of programs, pro-

cedures, and activities of HRM. Sound measurement, followed by data-driven decision making, are keys to effective management. Remember the old adage: if it’s not measured, it’s not managed. Management needs to collect and validate information. This information can

be a major asset and in many cases, “the raw material of new products and services, smarter

decisions, competitive advantage for companies, and greater growth and productivity.” 6 A 2011

study led by MIT professor Erik Brynjolfsson showed that companies that adopted “data-driven

decision making” for major managerial decisions achieved productivity that was 5 to 6 percent

higher than what could be explained by other factors, including how much the companies in-

vested in technology. Data-driven decision making was defined not only by collecting sound

data on critical variables, but also whether the results of the data collection were then used

to make crucial decisions. The major distinction made in the study was determining whether

Major HRM responsibilities

Sound measurement is critical to effective HR

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managerial decisions were based mainly on “data and analysis” versus the more traditional

“experience and intuition.” 7

Graphology has been the subject of sound, data-based research to determine whether

diagnostics that derive from a person’s handwriting actually predicts whether a person is

going to be a competent manager and great salesperson (it doesn’t). As we discuss in detail

in Chapter 6, there are many methods that do an excellent job predicting performance.

Data-driven (and effective) HRM means decision makers (HR specialists and line managers)

are aware of these valid methods and then use them to make decisions.

Many HRM systems and activities are not subjected to systematic measurement and

analysis. In fact, many organizations do not assess either the short- or long-term con-

sequences of their HRM programs or activities. Another key theme of the book is that

measurement and data-driven decision making are key components to organizational effectiveness and competitive advantage. Good measurement and data-driven decisions, allied with business strategies, will help organizations identify and improve all of their

HRM activities and resultant decisions.

Stanford University professor Jeffrey Pfeffer considers measurement to be one of the keys

to competitive advantage. His book Competitive Advantage Through People cites measurement as one of the 16 HRM practices that contribute the most to competitive advantage. 8 Pfeffer’s

views were echoed and expanded in the popular text The Balanced Scorecard by Harvard professor Robert Kaplan and consultant David Norton. 9 Kaplan and Norton stress that “if com-

panies are to survive and prosper in information age competition, they must use measure-

ment and management systems derived from their strategies and capabilities” (p. 21). Their

“balanced scorecard” emphasizes much more management attention to “leading indicators” of

performance that predict the “lagging” financial performance measures. The “balance” reflects

the need to measure short- and long-term objectives, financial and nonfinancial measures,

lagging and leading indicators, and internal and external performance perspectives.

In their book The Workforce Scorecard, Professors Mark Huselid, Brian Becker, and Dick Beatty extend research on the “balanced scorecard” to a comprehensive management

and measurement system designed to maximize workforce potential. 10 These authors show

that the traditional financial performance measures such as return on equity, stock price,

and return on investment, the “lagging indicators,” can be predicted by the way companies

conduct their HR. HR practices are the “leading indicators” that predict subsequent finan-

cial performance measures. 11 Unfortunately, research indicates that only a small percent-

age of HRM programs or activities are subjected to critical, data-driven analysis. The good

news, however, is that the percentage is at least going up. Measurement and data-driven

decision making are essential for American organizations in the 21st century!

One study defined the vision of HRM for the 21st century. HRM activities must be

(1) responsive to a highly competitive marketplace and global business structures,

(2) closely linked to business strategic plans, (3) jointly conceived and implemented by line

and HR managers, and (4) focused on quality, customer service, productivity, employee

involvement, teamwork, and workforce flexibility. 12 In general, research shows that the

realization of this vision translates into greater organizational effectiveness.

Perhaps because of this body of research, the status of HRM is improving relative to

other potential sources of competitive advantage for an organization. Professor Pfeffer notes

that “traditional sources of success (e.g., speed to market, financial, technological) can still

provide competitive leverage, but to a lesser degree now than in the past, leaving organi-

zational culture and capabilities, derived from how people are managed, as comparatively

more vital.” 13 Research clearly indicates that certain HR practices can increase employ-

ees’ knowledge, skills, and abilities through more valid staffing and selection decisions,

serve to empower employees to leverage these superior characteristics for the benefit of

the organization, and to increase the motivation of these employees to do so. The results

of these practices are greater job satisfaction and organizational commitment, lower levels

of voluntary turnover among key personnel, and higher productivity. 14

You are likely to manage people at some point in your career. Research shows that the

extent to which you as a manager make data-driven, evidence-based HR decisions will

be a key to your effectiveness as a manager. 15 We believe that the knowledge and experi-

ences we provide here will prepare you to be an effective manager. We emphasize that the

The Balanced Scorecard

The Workforce Scorecard

Lagging and leading indicators

The vision of HRM for the 21st century

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most effective HRM programs, policies, and practices are those that derive from strong

research and data-driven decisions that are carefully aligned with the organization’s strate-

gic mission and objectives. All HRM activities should be evaluated in this context, using

“leading indicator” performance measures.

Keep mission in mind

WHAT IS HUMAN RESOURCE MANAGEMENT? The human resources of an organization consist of all people who perform its activities.

In a sense, all decisions that affect the workforce concern the organization’s HRM func-

tion. Human resource management concerns the personnel policies and managerial prac-

tices and systems that influence the workforce. Regardless of the size—or existence—of a

formal HRM or personnel department (many small businesses do not have a formal HRM

department), the activities involved in HRM are pervasive throughout the organization.

Line managers, for example, will spend more than 50 percent of their time involved in

human resource activities such as hiring, evaluating, motivating, disciplining, and schedul-

ing employees.

The effectiveness with which line management performs HRM functions with the tools,

data, and processes provided by HRM specialists is the key to competitive advantage

through HRM. This principle generalizes from very small businesses to the very largest

global enterprises. Dr. James Spina, former head of executive development at the Tribune

Company, really put things in perspective about the role of HRM. He said, “The HRM

focus should always be maintaining and, ideally, expanding the customer base while main-

taining and, ideally, maximizing profit. HRM has a whole lot to do with this focus regard-

less of the size of the business, or the products or services you are trying to sell.”

Those individuals classified within an HRM functional unit provide important products

and services for the organization. These products and services may include the provision

of, or recommendation for, systems or processes that facilitate organizational restructur-

ing, job design, personnel planning, recruitment, hiring, evaluating, training, developing,

promoting, compensating, and terminating personnel. A major goal of this book is to provide information and experiences that will improve the student’s future involve- ment and effectiveness in HRM activities.

A good way to think of an HR department is to view the department as a business

within the company. The HR business has three product lines: (1) administrative services

and transactions, which are made up of areas such as staffing and compensation; (2) busi-

ness partner services, which assist in implementing business plans and meeting objectives;

and (3) strategic partner, which contributes to the firm’s strategy based on human capital

considerations and developing HR practices to foster competitive advantage. 16 The most

common and traditional product line for HR is the first one: administrative services. How-

ever, the most effective (but less common) HR departments contribute significantly to the

other two lines as well.

While HR is capable of creating and sustaining competitive advantage, some would ar-

gue that HR, as it is practiced, is often more a weakness than a strength. One survey found

that only 40 percent of employees thought their companies were doing a good job retaining

high-quality workers, and only 41 percent thought performance evaluations were fair. A

mere 58 percent of respondents reported their job training as favorable. A majority said

they had few opportunities for advancement and they had little idea about how to advance

in the first place. Only about half of those surveyed below the managerial level believed

their companies took a genuine interest in their well-being. 17

Line managers and HRM

HRM and Corporate Performance

A growing body of research shows that progressive HRM practices can have a significant effect on corporate performance. Studies now document the relationship between specific HR practices and critical outcome measures such as corporate financial performance, pro-

ductivity, product and service quality, and cost control. 18 Many of the methods characterizing

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these so-called high-performance work systems or practices (HPWP) have been researched

and developed by the HRM academic community. Figure 1-1 presents a summary of this

research.

HPWP are particular HR practices or characteristics designed to enhance employees’

competencies and productivity so that employees can be a reliable source of competitive

advantage. They have been called “coherent practices that enhance the skills of the work-

force, participation in decision making, and motivation to put forth discretionary effort.”

Research shows that “firm competitiveness can be enhanced by high-performance work

systems.” A summary of this research found that one standard deviation of improved

assessment on an HPWP measurement tool increased sales per employee in excess of

$15,000, an 8 percent gain in labor productivity. 19 A more recent review concluded that

“research in applied psychology and strategic human resource management clearly indi-

cates that investing in human capital can yield positive individual- as well as organization-

level performance outcomes.” 20

Recall the critical remarks earlier about graphology, or handwriting analysis. Validated

selection and promotion systems are related to higher productivity and reduced costs (see

Figure 1-1 ). The term validated means that the practice has actually been shown to (statistically) predict (or correlate with) something important. If you’re using a method to select managers or sales personnel, a “validated” method is a practice that research has

shown to actually predict managerial or sales success. In the field of HRM, there are highly

valid methods and procedures for predicting future employee performance based on the

assessed personal characteristics of job candidates.

Better training and development programs and team-based work configurations im-

prove performance and job satisfaction and decrease employee turnover. Particular incen-

tive and compensation systems also translate into higher productivity and performance.

The fair treatment of employees results in higher job satisfaction, which in turn facilitates

higher performance, lower employee turnover, reduced costs, and a lower likelihood of

successful union organizing.

Greater demands are now being made on HRM practitioners to respond to contempo-

rary trends in the business environment. Today, the most effective HRM functions are

conceptualized in a business capacity, constantly focusing on the strategy of the organiza-

tion and the core competencies of the organization. HRM specialists must show how they

can make a difference for the company’s bottom line and, if necessary, serve as “business

problem solvers.” Costs and efficiencies are necessary criteria for evaluating recommenda-

tions from research in HRM.

Many corporate strategy specialists maintain that the key to sustained competitive ad-

vantage is building and sustaining core competencies within the organization and main-

taining flexibility in order to react quickly to the changing global marketplace and the

advances in technology. One primary role of HRM practitioners should be to facilitate

these processes.

High-performance work systems

Validation

Focus on core competencies

■ Large number of highly qualified applicants for each strategic position. ■ The use of validated selection and promotion models/procedures. ■ Extensive training and development of new employees. ■ The use of formal performance appraisal and management. ■ The use of multisource (360 degree) performance appraisal and feedback. ■ Linkage of merit increases to formal appraisal processes. ■ Above-market compensation for key positions. ■ High percentage of entire workforce included in incentive systems. ■ High differential in pay between high and low performers. ■ High percentage of workforce working in self-managed, project-based work teams. ■ Low percentage of employees covered by union contract. ■ High percentage of managerial jobs filled from within.

Figure 1-1 Characteristics of High-Performance Work Practices (HPWP)

Source: Reprinted by permission of Harvard Business School Press. From The HR Scorecard, by B. Becker and M. Ulrich. Boston, MA, 2001. Copyright © 2001 by the Harvard Business School Publishing Corporation’ all rights reserved.

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While HRM executives and managers are more educated and professional than in the days

when they were simply in charge of personnel, the level of knowledge in practicing HRM

is another story. Many companies hire MBAs for HRM jobs even from programs where not

even a single HRM course may be required for the MBA. The 190,000-member Society

for Human Resource Management (SHRM, see www.SHRM.org ), which established the

Human Resource Certification Institute, formally recognizes human resource profession-

als who have demonstrated particular expertise in HR. As of 2011, over 108,000 certified

HR professionals in more than 70 countries have received and maintained HR credentials

through this respected institution.

HRM practitioners need to pay more attention to academic research. There is a great

deal of carefully crafted academic research that is highly relevant to HRM practice. This

research should help HR practitioners and line managers doing HR work to make more

data-driven decisions. Figure 1-2 presents a few examples of discrepancies between the

current state of HR practice and undisputed academic findings and recommendations. One

study showed the extent of this “knowledge gap.” 21 HR professionals were given a 35-item

test that assessed the extent of their HR knowledge (the same test you may have completed

as part of Critical Thinking Application 1-A). The test was based on findings from aca-

demic research, which would likely be covered in any basic HR course like this one. Items

were developed where there was little or no argument on the correct answer within the

academic community. The average grade for the nearly 1,000 HR professionals was “D.”

On numerous items, over 50 percent of the HR professionals got the answer wrong! More

recent research indicates that a “C” grade may be more appropriate for HR practitioners

today but it’s still fair to say that the “knowledge gap” persists. 22

Throughout the book, we intend to emphasize the most glaring discrepancies between the

way HRM is actually being practiced and what academic research has to say about particu-

lar practices. The failure on the part of HRM practitioners to be aware of and consider these

research findings can ultimately have a profound effect on an organization’s “bottom line.”

SHRM

knowledge gap

DISCREPANCIES BETWEEN ACADEMIC RESEARCH AND HRM PRACTICE

Academic Research Findings HRM Practice

RECRUITMENT

Quantitative analysis of recruitment sources using yield Less than 15% calculate yield ratios. Less than 28% know how. ratios can facilitate efficiencies in recruitment.

STAFFING

Realistic job previews can reduce turnover. Less than 20% of companies use RJPs in high-turnover jobs.

Weighted application blanks reduce turnover. Less than 35% know what a WAB is; less than 5% use WABs.

Structured and behavioral interviews are more valid. 40% of companies use structured interviews. Less than 50% use behavioral interviews.

Use actuarial model of prediction with multiple valid measures. Less than 5% use actuarial model.

Graphology is invalid and should not be used. Use is on the increase in the United States.

PERFORMANCE MANAGEMENT AND APPRAISAL

Do not use traits on rating forms. More than 60% still use traits.

Train raters (for accuracy, observation bias). Less than 30% train raters.

Make appraisal process important element of manager’s job. Less than 35% of managers are evaluated on their performance appraisal practices.

COMPENSATION

Merit-based systems should not be tied into a base salary. More than 75% tie merit pay into base pay.

Gain sharing is an effective PFP system. Less than 5% of companies use it where they could.

Figure 1-2 Sample of Discrepancies between Academic Research Findings and HRM Practices

Source: H. J. Bernardin (2011), “A Survey of Human Resource Practices: Discrepancies Between Research and HRM Practice.” Unpublished Manuscript.

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Although line management plays a critical role in the successful implementation and exe-

cution of HRM programs, these programs are typically developed, purchased, and adopted

because of recommendations by HRM specialists. For the small business with no formal

HR department, the person in charge of HR issues needs to be the HR expert.

Many HR activities such as payroll, recruitment, and preemployment screening are

now routinely outsourced to organizations that specialize in these areas. 23 The number of

consulting organizations specializing in HR activities has increased substantially in the last

10 years. There are now web-based HR products and services for almost every major functional area of HR. An organization’s HR specialist must have the necessary knowl- edge and skills to be able to either develop unique HR products or services or to identify

the best and most cost-effective of these HR products and services for a particular situation.

HRM professionals should possess up-to-date knowledge about the relative effective-

ness of the various programs and activities related to HR planning, training and devel-

opment,

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